Those Speed Bumps for Greece Are Full of Hot Air

Hope you didn’t expect the road to run smoothly. Friday’s press-conference announcement of a compromise on a second rescue package for Greece was interesting, but there will be many bumps on the path to an actual rescue package.

If Friday was a day for Eurozone leaders to show that they weren’t willing to throw Greece and the euro to the wolves of political expediency, the weekend was a time for demonstrating how tough they would be on Greece.

Suddenly, just after German Chancellor Angela Merkel announced that Germany would withdraw its insistence on a mandatory extension of maturities on Greek government debt—thus clearing the way for a deal acceptable to the European Central Bank and global debt rating companies—Eurozone politicians started to talk about releasing only part of the funds from Rescue Package No. 1 that Greece needs in July to avoid a default.

The ostensible reason was to keep pressure on the Greek government to pass a package of roughly $60 billion in budget cuts, tax increases, and asset sales promised to the International Monetary Fund, the ECB, and the European Union. Two votes on that package come up in Athens soon: a vote of confidence in the new cabinet set for Tuesday, it seems, and a vote on the austerity package itself set for June 28.

But as has been true throughout this crisis, much of what Eurozone politicians had to say over the weekend was intended for voters back home. Merkel faces a near-revolt in her own party over her Friday compromise, so tough talk about holding Greece accountable from her Finance Minister, Wolfgang Schauble, was an effort to show that Merkel hadn’t sold out German taxpayers.

Markets weren’t amused. In the United States, the S&P 500 index traded below Friday’s close for much of the first hour of trading.

This, of course, led to the usual “Oops, what have we done?” reaction from Eurozone politicians. It was left to Luxembourg’s Jean-Claude Juncker, head of the group of Eurozone finance ministers, to step back from the weekend’s rhetorical cliff.

Private investors will take part in any second round package, he told reporters, and Italy isn’t in any danger of needing a rescue. Not exactly to the point, perhaps, but still better than a poke in the eye from some sharp rhetoric.

We’re not likely to see an actual deal until July 11. They’ll be plenty of verbiage until then.

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.